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Apple’s Auto Gamble Is Risky Business

Apple may be taking a big risk by wading into the automobile market, but that it may be an essential one for a company that must keep moving forward or risk being left in the dust by competitors.

Rumors have the $700 billion company looking at getting into the automotive business, and that the company has already assembled a large team of experts to work on the project.

An “iCar” by 2020 may mesh well with the company’s core competencies of redefining everyday products such as music players, smartphones, and eventually watches. Apple may have decided that cars is the next logical place to go, and the company certainly has a lot of pressure to continue to take bold new steps, especially with developments by competitors such as Google creating their own self-driving cars.

It won’t be a decision to be taken lightly, and Apple certainly has time to back out. Former General Motors Vice Chairman Bob Lutz noted in the report that it would take enormous capital to launch an automotive product, and the industry typically doesn’t have big profit margins. It seemed strange to him that Apple would go into a business where, at best, Apple can expect a 5 or 6 percent margin, and in bad times, it will cost the company a great deal of money.

And it’s more than just the capital. There are a huge amount of state and regulatory obstacles to overcome, as well as global hurdles such as engineering a car to drive on the right-hand side. Most likely, Apple would jump into the electric car market, as Tesla has. It’s not clear whether it would also seek to go for automation as Google has.

Tesla may be an example of why Apple might want to think twice. The automaker has burned through lots of money in the past 10 years and have sold just 35,000 cars in the last year. Apple is not likely to be happy with similar figures.